Thursday, February 5, 2009

When Thain arrived at Merrill, he did what almost every incoming CEO does in a crisis situation.

he started with a massive write-off and raised billions of dollars of new capital to replace the money the company had lost. When he finished with this housecleaning, Thain pronounced his new firm is in solid shape.

Over the next few quarters, however, as the real-estate and credit markets slid toward the worst financial crisis since the Great Depression, the value of Merrill's assets continued to deteriorate. Stock price plummeted. Instead of blaming skeptics and short-sellers for Merrill's sagging stock price, several times over the next few quarters, he swallowed his pride, took more enormous write-offs, and raised even more capital. When Lehman failed, Thain played his weak cards wisely: Instead of wasting another precious day explaining to investors why the market was wrong and the firm's balance sheet was strong, Thain acted. And this time, he fixed Merrill's problem once and for all.

Over at Lehman, CEO Dick Fuld was dealing with the same problems but could not implent the same solution that easily. It could be bcause of reluctance to own up to his own mistakes because he was responsible for the strategies that brought Lehman to the crisis strategy. Are Fuld must have failed to recognize how rapidly the markets were deteriorating. Regardless, toward the end, when Fuld finally realized how far up a creek he and Lehman were, it was too late.